Question

On January 1,2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $130,000 in cash. The equipment had originally cost $117,000 but had a book value of only $71,500 when transferred. On that date, the equipment had a five- year remaining life. Depreciation expense is computed using the straight-line method Ackerman reported $530,000 in net income in 2018 (not including any investment income) while Brannigan reported $173,900. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which was amortized at a rate of $6,300 per year. a. What is consolidated net income for 2018? b. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan? c. What is the parent's share of consolidated net income for 2018 if Ackerman owns only 90 percent of Brannigan and the equipment transfer was upstream? d. What is the consolidated net income for 2019 if Ackerman reports $550,000 (does not include investment income) and Brannigan $186,200 in income? Assume that Brannigan is a wholly owned subsidiary and the equipment transfer was downstream Amounts a. Consolidated net income b. Consolidated net income to parent company c. Consolidated net income to parent company d. Consolidated net income

Answer 1

Part A

Net income—Ackerman	530000
Net income—Brannigan	173900
Excess amortization for unpatented technology	(6300)
Remove unrealized gain on equipment ($130,000 – $71500)	(58500)
Remove excess depreciation created by inflated transfer price ($58500 ÷ 5)	11700
Consolidated net income	650800

Part B

Net income calculated in (part a.)		650800
Noncontrolling interest in consolidated net income
Net income—Brannigan	173900
Excess amortization	(6300)
Adjusted net income	167600
Noncontrolling interest in consolidated net income	10%	(16760)
Consolidated net income to parent company		634040

Part C

Net income calculated in (part a.)		650800
Noncontrolling interest in consolidated net income (see Schedule 1)		(12080)
Consolidated net income to parent company		638720

Schedule 1

Reported net income of subsidiary	173900
Excess amortization	(6300)
Defer unrealized gain on equipment transfer	(58500)
Eliminate excess depreciation ($95,000 ÷ 5)	11700
Brannigan realized net income	120800
Outside ownership	10%
Noncontrolling interest in consolidated income	12080

Part D

Net income 2019—Ackerman	550000
Net income 2019—Brannigan	186200
Excess amortization for unpatented technology	(6300)
Eliminate excess depreciation stemming from transfer ($58500 ÷ 5) (year after transfer)	11700
Consolidated net income	718200